California Business and Professions Code section 16600 states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” This statute has been interpreted to mean that noncompete agreements in employment contracts are per se invalid in California as an unlawful restraint on trade. Quidel Corp. v. Super. Ct., 39 Cal. App. 5th 530, 539 (2019). However, on August 29, 2019, in Quidel Corp. v. Superior Court, the California Court of Appeal declined to extend this prohibition against noncompetes to circumstances outside of the employment context.
The case involved a dispute between two biomedical companies over rights to conduct research and develop medical assays (an investigative procedure) for use in diagnosing cardiac disease. The plaintiff, Biosite, Inc. (“Biosite”), had licensed the rights to use its assay to the defendant, Beckman Coulter, Inc. (“Beckman”), on the condition that Beckman agree not to research or develop a competing assay until two years before the license was to expire. Beckman sued Biosite, alleging that the condition that Beckman not research or develop a competing assay was void under California Business and Professions Code section 16600. The trial court agreed, and granted Beckman summary adjudication that the noncompete was void.
The California Court of Appeal disagreed, and has now ruled that California Business and Professions Code section 16600 does not extend beyond the employment context. The Court of Appeal said that California has an express public policy favoring every citizen’s right to pursue any lawful employment of their choice, since an employee’s interests in mobility and betterment outweigh the competitive business interests of employers. However, provisions agreed to by sophisticated companies do not implicate those same public interests. So long as noncompete provisions (outside of the employment context) do not negatively affect the public interests, are designed to protect the parties in their dealings, and do not involve an attempt to establish a monopoly, they may be reasonable and valid. The Court of Appeal then remanded the case for further factual development as to whether the noncompete at issue was a restraint of trade and whether the noncompete was in fact necessary to protect the parties in their dealings.
This means noncompete agreements might not be completely dead in California.